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Flourishing, but smaller? A look at where Best Buy might be in 10 years

Given everything that's happened, we've asked two retail experts: Where will Best Buy be in 10 years' time?
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There's no doubt Best Buy is in a better place than it was four years ago, when it was riddled with internal turmoil and struggled to come up with a profitable business model.

Under the leadership of Hubert Joly, who took over in the summer of 2012 from departing founder Richard Schultze, the company has turned its fortunes around after a period in which some analysts were predicting its demise, particularly in the face of competition from Amazon.

But investment site The Motley Fool suggests recent improved profit margins are mostly the result of cost-cutting, as well as taking business that had been going to weaker or now-failed competitors.

The turnaround has not been a total one, and the past 12 months has seen the Richfield-based company underperform due to declines in smartphone sales, and a lack of new products from big companies like Apple.

Last month, Best Buy's financial outlook took a hit and its shares quickly fell afterward, as reported by CNBC.

But with one-time rival Radioshack filing for bankruptcy this past fall, and with Sears "bleeding cash" and struggling to survive, Best Buy looks set to be the last one standing out of the U.S.'s major electronics retailers.

Given everything that's happened, we've asked two retail experts: Where will Best Buy be in 10 years' time? (Note: We reached out to Best Buy as well, but a spokesperson said they couldn't comment on future performance.)

Still here, but smaller?

Neil Saunders, of retail research agency Conlumino, thinks Best Buy will flourish where RadioShack and Sears have failed/are failing because it is a "better business" with a more loyal customer base.

But, he says its real estate footprint – basically how big the stores are – is unsustainable. He expects the company to cut back in future years, particularly given that some of its categories like DVDs are likely to disappear in the next decade.

"Best Buy will probably still be around in 5-10 years, but it will likely be a smaller business with fewer stores, many of which will be smaller," he said. "It will be leaner and tighter in terms of operations and a far higher percentage of sales will be made online.

A decline in tablet and smartphone sales have hit short-term profits and though the retailer performing well with appliance sales, it's not enough to make up for it.

Going forward though, Saunders said Best Buy should focus on personal health and wellness tech – including wearable goods like FitBits – which he considers a "big area of growth."

"The selection needs to be better displayed and explained in stores, especially larger stores where it can get lost among all of the other things Best Buy sells," he says.

He also expects in the future it will make money from service-related spending – such as set-up, installation, warranties, training etc – which our next retail expert highlights is the absolute key to Best Buy's future success.

Is Geek Squad the key?

Paula Rosenblum, managing partner at Retail Systems Research, says that Best Buy's service departments makes it stand out not only from its physical rivals, but also from Amazon.

"Service is a differentiator, like their Geek Squad," she told GoMN. "I bought a TV from Amazon instead of from Best Buy and I regretted it."

"It seems to be that Best Buy is the last remaining one-stop shop for all things electronic," she adds. "And one thing we all have to remember is that there's always going to be people who need assistance and want to go to a store and bring in their electronics for help."

While they are important in the short-term for Best Buy, Rosenblum does not think that "phones are the future" for the company, and it instead should focus on the differentiator.

As well as service, this could also comprise "the internet of things," the concept of all appliances and gadgets in a home being connected by Wi-Fi.

"The internet of things is something they could really benefit from," she said.

Best Buy already sells smart appliances and is benefiting from the struggles of appliance rival Sears.

"They really lost their way for a while," Rosenblum said, "but I really have to give props to Hubert Joly who has done a good job restoring their name. I went into their store recently and was impressed by their service levels and their ability to find things."

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